Avatar Is So Good, You Shouldn't Short News Corp. Stock

Because of that, Rich upgraded News Corp. from a sell to neutral in a note this morning.

Greenfield says the risk/reward of shorting News Corp. after seeing a screening of Avatar is not appealing.

He writes, "the honest truth is that nobody in the world has ever seen a movie like Avatar."

While the movie probably won't generate huge profits, it will not be a disaster, profit-wise, he says. Fox's film slate overall is looking good.

Here's Greenfield:

Earnings estimates are going higher, even without outperformance in film. As shown in Exhibit A, our revised estimates now assume high-teens organic operating income growth in fiscal (June) 2010, well above management guidance of high-single to low-double digit growth, albeit largely discounted in the stock. In addition, we believe EPS will be $0.86 now, versus street consensus of $0.81 (our prior estimate was also above consensus at $0.82).

Our short thesis had been premised on the lack of growth post-FY2010 (we are still expecting flat EPS in FY11, albeit off a higher base). However, with earnings heading higher, shorting for an FY11 earnings miss simply feels pointless.